The plan would also allow businesses to swap PRNs for tax credits, meaning the tax would only apply to non-recycled materials. ESA estimate obligated businesses would save £40m in tax credits, leaving a net benefit to the Treasury of around £30m.

ESA said: “The introduction of a packaging levy would incentivise the top of the waste hierarchy and the reduction of packaging waste.”

The report was published ahead of the forthcoming Autumn Statement, which updates the government’s economic plans.

ESA criticised the government for “bypassing” waste policy in its green taxation plans. It also argued that as landfill taxes continue to fall, revenue could be generated from other parts of the waste sector.

In addition to a packaging levy, it called for a levy on the purchase of virgin peat to encourage compost recycling, greater capital allowances for investment in materials sorting and “green infrastructure investment allowances” to boost waste recovery infrastructure.

It also called for a lower Carbon Reduction Commitment allowance band for the recycling and reprocessing sector.

ESA estimates that the combination of these measures could give the UK economy a boost of up to £2bn.

The trade body ruled out raising tax from waste incineration, however, over concerns on the impact on renewable energy generation.

ESA’s Director of Policy, Matthew Farrow said: “The Government must recognise its over-reliance on landfill tax both in policy and revenue terms. We believe landfill tax revenues may fall quickly in the coming years, making deficit reduction harder. At the same time, the environmental benefits of the tax will diminish as the focus moves further up the waste hierarchy. And the lack of clarity over the future of the tax post-2014 has created business uncertainty.

“In our report we show how the easy option of extending the landfill tax escalator beyond 2014 is the wrong option. Instead, we need some new thinking about how to promote investment further up the waste hierarchy. We propose a package of fiscal incentives and new taxes to do this.”

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